Over the past 24 years, the average level for the VIX has been 19.65. On Tuesday, it dipped below 10 – something we’ve seen happen only nine times since 1990.

That reading was the lowest it’s been since 1993.

Investors often substitute volatility for “risk.” But it is a completely different thing. Typically, when the VIX is this low, it marks a dangerous complacency, not the absence of real risk.

What is interesting about this period in our history is that, despite a high level of complacency among investors, there are plenty of things investors aren’t fretting about… and plenty of reasons for the VIX to spike higher.

This “sub-market” is 1/1000th the size of the S&P 500. Some heavy hitters have recently begun to enter it. Like billionaires Richard Branson, Peter Thiel, and LinkedIn co-founder and billionaire investor Reid Hoffman.

The Economist calls it “one of the world’s hottest investments.” Because the returns have been so high, you don’t need to bet the farm. In fact, you can get started with just 40 or 50 bucks.

—

Polished Ice

Meanwhile, Mr. Trump is commander-in-chief of the most lethal and most stretched-out imperial army in history.

He is also perhaps the most reckless and impulsive leader ever to be in such a position.

Hey… what do you think? (Note that recklessness and impulsiveness are probably not what you want in a leader… unless you are long the VIX!)

And U.S. stocks are trading near the tippy top of their range. Every step they take is on polished ice.

Investors have added nearly $2 trillion to the value of the S&P 500 in the last three years. Yet the 500 companies represented in the index, on average, made less profits per share last year than they did three years ago.

In other words, investors are paying up for “growth” that isn’t there.

Also, more than half the increase in the S&P 500 has come from just five stocks. This kind of narrowing of “market breadth,” too, is a classic warning sign of a bubble peak.

Reflation Trade

Well, some analysts believe they were just taking part in the Trump “reflation trade.”

The president pledged to slash taxes, cut Wall Street regulation, and splurge $1 trillion on infrastructure. This would lift corporate earnings, and stock prices, analysts calculated.

But there will be no major tax cut. No major infrastructure program. And no significant cuts to regulation.

Why not?

Because at this point, the confusion, contradictions, and contrasting agendas embedded in the White House and the Republican Party make any major legislative victory nearly impossible.

Again, we don’t know what will happen. And for this opportunity, it doesn’t matter. We won’t be betting on any particular outcome. We’ll just be betting on an increase in fear.

The current “expansion,” weak as it is, has been going on for 112 months. The average post-World War II expansion lasted only 58 months. This one is due to take a breather beside the road… or run into a ditch.

Which brings us back to our RSP.

To us, the situation looks like it will soon need the attentions of the bomb squad. But the VIX is telling us things haven’t been so calm since 1993.

Which is another way of saying buying the VIX below 10 in 1993 – and betting on more volatility ahead – turned out to be a good trade.

It didn’t drop to such low levels again until 24 years later.

Regards,

Bill

P.S. Buying the VIX is a speculation. It is for gamblers who are braver, smarter, and faster than we are. And if they are lucky, perhaps this bright dawn of complacency will be followed by a total eclipse.

If investors still believe Team Trump will make good on its promise of major financial deregulation, XLF would be on fire.

And oil, steel, and copper are all needed for big infrastructure projects. If investors had faith that a $1 trillion infrastructure spending bill was on its way, these commodities would be in rally mode, too.

But as you can see from today’s chart, that’s not happening.

“Trump Trade” bets on financials, oil, steel, and copper fizzled in February, about a month after the president took office.

A Secret Weapon in the War on Cash
Demonetization and negative interest rates continue to erode people’s financial independence. But now, colleague Teeka Tiwari shows how you can “sidestep” this intrusion by governments and central banks.

Mailbag

When you say that the right to secede is in “the founding document of the U.S., the Declaration of Independence” I presume you are referring to the following passage: “when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”

However, the South suffered no such train of abuses nor usurpation.

What they saw was new territories/states being added to the Union where slavery would not be allowed. The delicate balance of power in the Congress was being lost, tipped in favor of the non-slaveholding states. Realizing that they would soon be outnumbered badly, they chose secession rather than risk losing their “property” in the years to come. As much as I hate to agree with Chelsea Clinton, she is correct in stating that slavery was the root cause of the war.

– Steve M.

Abe Lincoln is falsely revered as one of our greatest presidents. He refused to let the southern states exercise their Constitutional right of secession and caused the deaths of hundreds of thousands of citizens he swore to serve and protect. His actions virtually erased the 10th Amendment. He also created the “Federal Mafia” which signaled the end of the Republic.

– Arthur S.

I am once again very impressed by your description of the “Civil War”. I have always regarded Abe Lincoln as one of the greatest American war criminals of all time. As a Canadian, I have always had a very high regard for Americans in general… but a very low regard for most of the presidents and their benighted warmongering. Why is it that America has almost always been fighting on the wrong side?

Was World War I the worst? America’s entry led directly to the Bolshevik revolution. Then in World War II, we fought and died for “Uncle” Joe Stalin. Without the gigantic military, industrial, clothing and food aid from the West, the Soviets and their diabolical system would have been soundly beaten.

– Joe B.

I hope you will follow up on your sincerely thought-provoking letter on the War of Northern Aggression (preferably referred to by the ladies as “the late unpleasantness) with a missive untangling Maryland’s role.

– Christine C.

I’m from South Louisiana and have always been fascinated by the Civil War.

I have read a lot about the war in college and have recently been reading books specifically dealing with the topic of secession. I very much enjoy when Bill discusses the “Civil” War in his posts and was hoping he could recommend any books on the subject that he enjoyed.

– Joshua B.

Editor’s Note: As a special treat to all the Civil War buffs who read the Diary, we’ve unlocked Bill’s review of Shelby Foote’s iconic three-volume history of the war. This is normally available only to paid-up lifetime subscribers of The Bill Bonner Letter, but now you can read it for free right here.

In Case You Missed It…

Our colleagues at Casey Research just released a new video presentation.

In it, they reveal how the United States is on the cusp of the biggest military spending boom since World War II. And it won’t be the defense giants like Boeing and Lockheed Martin that see the biggest gains…

Instead, four relatively unknown small-cap defense companies could see 19 times larger gains. Learn more here.

A book written in the 1850’s titled “A Journey In The Seaboard Slave States” written by Frederick Olmsted is an excellent read for those interested in that era of American history. Mr Olmsted tours several Southern states and gives the reader a view of the South through the eyes of a Northerner. The discerning reader can decide if it’s 1850’s fake news. Personally, I care not whether the South had a right to secede. The fact that Slavery existed, the fact they vociferously defended their “peculiar institution” and had no desire or intent to rid themselves of it, for me, is enough reason to march on their cities.

I can sum up, in two words, why Trump will neither be impeached nor removed from office. Two words so convincing, they make Trump look like an amalgam of Stephen Hawking, Winston Churchill, George Washington, and David Ben Gurion.